South Korea is experiencing a notable productivity surge attributed to advancements in artificial intelligence (AI), according to analysts from Bank of America. However, ongoing tensions between the U.S. and China regarding the semiconductor industry could pose significant challenges to the country’s growth trajectory.
The semiconductor sector is vital for South Korea, constituting roughly 17% of its total exports. The Bank of America report highlights that South Korea has emerged as a significant beneficiary of the AI boom, with exports in this sector rising by over 50% year-over-year. Analysts are optimistic about the country’s prospects, citing robust investments in AI research and development and an increasing number of AI-related patents, which could strengthen its position in AI adoption in the long run.
Despite this progress, the report warns that geopolitical tensions could disrupt the semiconductor supply chain. The escalating dispute between the U.S. and China is particularly concerning, as China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with a similar percentage going to the U.S. Should the U.S. implement further trade restrictions on advanced or AI-related chips exported to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean companies rely on China for essential chipmaking components and equipment. Disruptions in this supply chain would complicate production processes for semiconductor manufacturers in South Korea. Recently, the U.S. has requested that South Korea limit exports to China of specific equipment and technology used in memory and advanced logic chip manufacturing. South Korean officials are concerned about the potential repercussions on major firms such as Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
In light of these circumstances, it is reported that the Biden administration may consider applying an export control rule that would impact allies continuing to supply chipmaking tools to China. This rule could inhibit the export of any product that includes a certain percentage of U.S. intellectual property components.
Despite these potential hurdles, South Korea’s consistent advancements in AI and its efforts to diversify chip exports are hopeful signs for the future. As the country navigates these challenges, its strong foundation in technology and innovation may yet allow it to thrive in the ever-evolving global market.